China, Taiwan and US relations will improve in 2008

I think the analysis is meaningless because I do not believe that the United States and China would go to war. Both countries are prospering under the current world system and world order. The Wired analysis speculates about the trigger for a war being Taiwan. However, if the KMT and Ma Ying-jeou win the election January 12 and March 22, then relations with China will improve and the risk of war over Taiwan will become virtually non-existent. I predict that the KMT and Ma will both win their elections. I could only imagine their loss if there was massive vote rigging or if enough Taiwanese voters were tricked by another DPP stunt.

The opposition Kuomintang, which favors closer mainland links, aims to retain control of parliament as a springboard to winning the presidency in March from the independence-leaning Democratic Progressive Party. Ma Ying-jeou, the opposition's presidential candidate, has pledged to raise growth and cut unemployment by easing trade and investment restrictions with the mainland.

`Most Taiwanese want better ties with China, and Saturday's vote, if the KMT takes more seats as expected, could indicate a rejection of confrontational policies,' said Yang Tai-shuenn, a political professor at the Chinese Culture University in Taipei.

By the end of 2008, China's economy (plus Macua and Hong Kong) will over ten times larger than the Taiwan economy. Similar to the ratio of China's economy to Hong Kong back in 1997 and the current ratio of Canada's economy relative to the United States.

I would predict that China's yuan to be between 6.4 and 6.7 at the end of 2008. China's economy would be about 26.2 trillion yuan at the end of 2008. China+Hong Kong + Macau combined GDP would be about 4.2 to 4.3 trillion US dollars vs 400 to 410 billion for Taiwan. With Chinese currency appreciation in the 9-12% per year range by 2014-2017 chinese per capita income could be in the range of half of Taiwan's. China's economy at that time would be very near the size of the US economy on an exchange rate basis.

There is no reason for China to go to war to fight for what they can soon buy.

Voters will also decide on two referenda: whether the KMT should give back assets gained in the more than five decades it governed Taiwan, and an opposition-proposed vote on wiping out official corruption.

The campaign has been marked by corruption charges and trials affecting both parties. Chen's wife, Wu Shu-chen, is on trial for embezzlement, forgery and misuse of funds, and prosecutors said they have enough evidence to charge the president on similar grounds if not for his presidential immunity. Both have denied the charges.

Chen's son-in-law, Chao Chien-ming, is on trial for insider trading after the Supreme Court last month revoked a conviction and asked the High Court to reconsider the case.

`President Chen has vowed to strive for Taiwan's economy, but in fact he has been striving only for his family's economy,' Ma told supporters at a rally in southern Taiwan on Jan. 6.

Ma himself also faces corruption charges, with prosecutors on Jan. 9 appealing his Dec. 28 acquittal on charges he misused government funds while mayor of Taipei.

The value added share of exports is less than 10% of manufactured exports. China's economy is driven not by exports but by investment, which accounts for over 40% of GDP.

This raises an additional concern: that weaker exports could lead to a sharp drop in investment because exporters would need to add less capacity. But Arthur Kroeber at Dragonomics, a Beijing-based research firm, argues that investment is not as closely tied to exports as is often assumed: over half of all investment is in infrastructure and property. Mr Kroeber estimates that only 7% of total investment is directly linked to export production. Adding in the capital spending of local firms that produce inputs sold to exporters, he reckons that a still-modest 14% of investment is dependent on exports. Total investment is unlikely to collapse while investment in infrastructure and residential construction remains firm.

Dragonomics forecasts that in 2008 the contribution of net exports to China's growth will shrink by half. If the impact on investment is also included, GDP growth will slow to about 10% from 11.5% in 2007. This is hardly catastrophic. Indeed, given Beijing's worries about the economy overheating, it would be welcome.

Hsieh did not openly call on President Chen to resign as chairman of the ruling party, but noted Wu Po-hsiung has vowed to step down as Kuomintang chairman, if the DPP wins 50 seats in the new Legislative Yuan.

"Wu wants to take responsibility for a Kuomintang loss," Hsieh said, suggesting that Chen should follow suit if he fails to achieve the 50-seat target he has set for the ruling party going into the elections.